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US jobs shock calls tapering into question

by Robert St George on Jan 10, 2014 at 14:10

US jobs shock calls tapering into question

Far fewer jobs than expected were created in the US last month, although unemployment has continued to slide as more people leave the working population.

Despite a consensus forecast of 197,000, US non-farm payrolls rose by only 74,000 in December, a significant decline from November’s figure of 241,000.

At 2pm the FTSE 100 was up 65 points at 6,756 as markets waited on the opening bell in Wall Street.

Paul Ashworth, chief US economist at Capital Economics, attributed the ‘unexpectedly weak’ number to the ‘unseasonably severe winter weather last month’.

He highlighted the US household survey, which revealed that 273,000 people had reported being unable to work because of the weather in December, and a drop of 16,000 in construction payrolls as indications of the winter’s effect.

‘All things considered, the well below consensus gain in payrolls will inevitably lead to speculation that the Fed will leave its monthly asset purchases unchanged at $75 billion per month at the upcoming meeting in late January,’ Ashworth noted.

However, Ashworth maintained his belief that the Fed, led by new president Janet Yellen (pictured), would still cut this by $10 billion given that unemployment had fallen to 6.7% from 7% thanks primarily to 347,000 people exiting the labour force.

‘At 6.7% the unemployment rate is closing in on the 6.5% threshold that was originally intended to signal that the Fed would at least begin to consider raising the Fed funds rate,’ Ashworth concluded.

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